An annual survey shows hospital CEO turnover rates remained largely unchanged in 2008, though industry observers expect the rate of change in the C-suite to accelerate for the rest of the year because of poor economic conditions.
But economy may prompt more CEO changes: experts
Thomas Dolan, president and CEO of the American College of Healthcare Executives, which released the annual study in advance to Modern Healthcare, said it was a confluence of factors that led to the lack of significant change in the turnover rate to 14% in 2008 from 15% in 2007. I would have thought that turnover might have increased, because the jobs are getting more difficult, lots of our CEOs are aging, and they would like to retire, Dolan said. I think what offset that was, the economy has, as we all know, reduced 401(k)s considerably. So some people are working longer because of that.
Dolan also said boards are becoming more averse to changing CEOs because of the negative effects on organizations. A CEO search takes at least six months, during which time the organization cannot move forward on major projects like joint ventures and construction.
Meanwhile, the first quarter of 2009 saw a slowdown in the executive search business, as boards sought to avoid uncertainty and executives watched the value of their retirement packages dwindle. But observers said that desire for stability could vanish in short order, which could counteract the slowdown in the search business. Those people who are in current positions may choose to remain stable, but that may be offset by involuntary changes, said Kathy Noland, senior vice president of executive search services at B.E. Smith.
The ACHE expects to release its 27th annual study this week, which is based on tracking CEO changes at community nonfederal hospitals as reported to the American Hospital Association. The study has been criticized in the past for overreporting turnover figures, and study authors have since adjusted their past findings to account for incorrect reporting of retained CEOs and the appointments of interim chief executives. The result is a fairly constant rate of turnover reported in the study, never going above 18% or below 13% since 1981.
John Self, senior client adviser with executive search firm JohnMarch Partners, said he thinks the CEO turnover rate could climb back up to the high end of the spectrum by this time next year as boards or their bondholders demand action on unprofitable returns for 2009. A lot of these hospitals that have high net revenue have anemic operating margins. And theyre not going to get by with that anymore, Self said. When you have troubled times, you end up with course corrections.
Keith Southerland, senior client partner at Korn/Ferry International, agreed that turnover rates are likely to increase, but probably not until after the economy has righted itself. He pointed to demographic trends, saying many of the baby boomer-era executives were preparing their retirements when the downturn severely curtailed the number of ongoing executive searches. Similar to Self, he predicted high turnover rates as were seen in the 1990s.
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